When you file for Chapter 7 bankruptcy in New York, the goal is to seek relief from all of your debts. There are times, however, when you may want to remain responsible for a particular obligation. This possibility happens when the debt is secured by a significant asset that the creditor could seize if you default, such as your car, a piece of real estate, or even your family home.
To prevent loss of the property in question, you must reaffirm the debt. This process, known as a reaffirmation agreement, involves you agreeing to remain responsible for the loan and keep making payments on it in exchange for the creditor’s promise that they will not take steps to repossess or foreclose on the collateral. Both sides enter into a new contract and submit it to the bankruptcy court for approval.
Required conditions for reaffirmation
To be considered valid, a reaffirmation agreement must meet certain key requirements, namely:
- It must be entered into before you are discharged from Chapter 7
- The agreement must be filed with the court
- You must be up to date with your payments on the loan
- All of the equity in the property must be protected by a bankruptcy exemption (otherwise your Chapter 7 trustee will probably sell the property to repay your unsecured creditors)
One of the most important conditions is that a reaffirmation agreement must be voluntary. You have up to 60 days after filing the agreement or the time you are discharged from bankruptcy (whichever is later) to change your mind and rescind the agreement. If you don’t, it will remain legally binding on both sides.
Even if you do not change your mind about reaffirming the agreement, there is always the possibility that the court may deem it a hardship or deny it altogether. If this happens, you will not be held legally liable for the agreement, and the creditor can claim their right to seize the collateral property.
Once your reaffirmation agreement is approved by the court, you are legally obligated to repay whatever amount was agreed upon. If you default, the creditor can seize the asset or even seek a judgment against you if selling the property doesn’t totally cover what you owe on the loan.
If you are experiencing financial difficulties that can be solved by Chapter 7 but don’t want to lose a valuable asset that serves as collateral for a debt, talk to a New York bankruptcy attorney about creating a reaffirmation agreement. Your attorney will advise you on whether or not such an agreement is feasible for you and work to achieve the best outcome for your case. Jayson Lutzky is a Bronx, NY attorney handling bankruptcy cases. If you have large amounts of debt and are seeking a fresh start, then contact Mr. Lutzky’s office at 718-329-9500 or 80-660-5299. He offers free in-person initial consultations. Visit mynewyorkcitylawyer.com/bankruptcy to learn more.